AdamB, one thing that isn't apparent to greater market yet is the fact that 90% of the companies producing in shale (which accounts for 6 mbpd of the 10 mbpd production increase that you speak of) can't make a profit in shale.

either you are a sock puppet for shortonoil or you haven't bothered to read the various posts here. The idea that companies involved in the tight oil/gas market aren't making a profit is basically incorrect. All one has to do is go and read the quarterly and/or annual reports or look at some of the industry analyses such as Ernst & Young. The blog posts (where you no doubt get your info) use accounting numbers reported by companies that include DD&A as well as invested cash for new acreage, acquisitions or new wells. DD&A is an accounting exercise that although important from the accounting side of things is not important when it comes to determining how well a company is doing. Those are paper entries and do not impact cash into the organization. When you look at cash in vs cash out based on their balance sheets not only are most of the companies making considerable money but they are able to fund all of their programs through reinvestment of the cash. Oil and gas companies are expected both by the market and their shareholders to not show much excess cash on hand other than operating cash at the end of a given reporting cycle. The reason is these are growth companies and to grow they need to reinvest all profits into the business unless they are dividending some of it back to shareholders. This is why a number of oil and gas companies last year bought back shares. They were expected to do something with their cash in order to improve company metrics and the obvious way to do that was buying back shares versus other activities such as more wells, acquisitions etc.

Rockdoc, I've read multiple sources and seen some of the quarterly reports. I see a lot of parenthesis in areas they should not be. I also work in the industry and I'm seeing some things that make me think its a Ponzi scheme just as we've seen before.

One thing to add, I have worked with many folks in many positions from upper management to the newest roustabout that are shocked on every single downturn. I might be a sock puppet for some folks calling for shale companies to fail, but I'm not a cheerleader who cheers all the way to the unemployment line with no savings because I believed the oilfield B.S. during every single boom. I've seen it from the 1980's until now and my gut instinct has served me right fairly well after being punched a few times.

I also work in the industry and I'm seeing some things that make me think its a Ponzi scheme just as we've seen before.

excuse me while I call BS. I worked in the industry for 30+ years and at the senior executive level for many years at several companies. After SOX legislation there was virtually nobody out there that was a publicly traded company who could possibly pull of a "Ponzi scheme" or any other kind of scheme. Full reporting is full reporting as required by the SEC. I've laid out the results for many of the shale companies here and it is clear the only way it looks like they aren't making a profit is if you include paper accounting entries which have nothing to do with real day to day cashflow (the analogy I always give is nobody would include the depreciation of their house or car in their annual budget plans).

I might be a sock puppet for some folks calling for shale companies to fail, but I'm not a cheerleader who cheers all the way to the unemployment line with no savings because I believed the oilfield B.S. during every single boom.

I doubt there is a single one of us who worked in the industry during the first major downturn that didn't anticipate it would happen again. The problem is if you are like some here who keep predicting it to happen tomorrow every day you are never able to take advantage of the upturn periods which can be short. That is what the unconventional story is all about right now, companies who know that the price is fickle but have prepped their company to crank up activity the minute that price shows a rebound....if that is for a few years great, if only a few months that's OK as well. A lot of the smaller startup shale companies overextended on debt during the runup and plateau years of $100 oil. They were encouraged into that position by their investors and the investment banks who wanted them to grow rapidly and secure more land which of course cost more and more due to the ever-increasing competition at high commodity prices. When it all came to a price crash in 2014 due to too much success and oversupply many were caught out overexposed on the debt side of things. From what I've seen most of the companies still around are avoiding that this time, instead paying down debt as fast as they can and the investment banks are helping out by being very, very selective to who they offer debt instruments.

Commodity price trend is down. This isn't related to the small, incremental oil supply additions that we have seen this year. I tend to focus on metals and emerging economy exchange rates to figure out whether oil is moving independently or it is part of some larger movement in the global economy.

It is somewhat akin to sticking your finger in the wind and seeing what direction it is pointing. But cherry-picking media articles and making sweeping generalizations just to argue nonsense seems much less sensible to me. I haven't done any counts but there are plenty of media articles recently that supposed demand to be the culprit.

RockDoc, are you serious about the SEC reporting thing stopping fraudulent actors, have you kept up with Tesla in the news? So I cheerfully call BS on your calling BS. Although we could parse words whether or not my use of Ponzi scheme is correct, it may be hyperbole, but I'm comfortable with my current assessment until time proves me right or wrong.

I doubt there is a single one of us who worked in the industry during the first major downturn that didn't anticipate it would happen again. The problem is if you are like some here who keep predicting it to happen tomorrow every day you are never able to take advantage of the upturn periods which can be short.

We are certainly not in the same circles. The people I'm around never see the next downturn and rarely financially prepare for it and always believe the industry cheerleading. They lose cars, houses and families get torn apart every single time they believe the industry BS. Also don't think that just because I'm calling for another bloodbath in the shale industry that I don't take advantage of the market as I see fit. I'm ok.

That is what the unconventional story is all about right now, companies who know that the price is fickle but have prepped their company to crank up activity the minute that price shows a rebound....if that is for a few years great, if only a few months that's OK as well. A lot of the smaller startup shale companies overextended on debt during the runup and plateau years of $100 oil.

If you were so inclined you could read where after the last downturn started I'm pretty sure I wrote that the rebound would be slower and more disciplined and it was to a certain extent, although I may have been overly optimistic. One of the problems I have with your line of thinking that I quoted is that with every price rebound that causes any kind of boost in activity will be met with higher drilling and completion cost. The drilling and service companies are bearing the brunt of the so called discipline, so its not being disciplined if you have no other choice.

I don't see the shale plays lasting due to high cost versus high depletion rates per well, no amount of discipline will change that. In my view some of the offshore South America, Africa, and Mediterranean look more attractive long term. Also I'm bullish natural gas very long term and that is where I could be nudged to change my mind on shale at some point. So I'm not at all an energy Perma- Bear, just shale oil (as of now).

RockDoc, are you serious about the SEC reporting thing stopping fraudulent actors, have you kept up with Tesla in the news? So I cheerfully call BS on your calling BS. Although we could parse words whether or not my use of Ponzi scheme is correct, it may be hyperbole, but I'm comfortable with my current assessment until time proves me right or wrong.

Please show me an oil and gas company that has falsified their SEC annual or 10K filings. Please show me an oil and gas company that has violated restrictions regarding disclosure.Tesla is not an oil and gas company and, in fact, the SEC went after Musk and they eventually negotiated a settlement around his pulling a fast one with regards to disclosure in a very public manner. At this point if individuals decide to continue to invest in Tesla then they are responsible for their own outcomes, the SEC did it’s job in bringing this forward and penalizing the company. The SEC publishes the investigations and penalties each year. If you believe oil and gas companies are lying on their SEC submissions, then I really think you haven’t informed yourself regarding independent audit requirements nor enforcement and have likely not bothered to read any of the filings of the oil and gas companies you claim are running Ponzi schemes. This Ponzi Scheme claim is a classic one that generally comes from people who get all of their information from Gold Bug blogs.

One of the problems I have with your line of thinking that I quoted is that with every price rebound that causes any kind of boost in activity will be met with higher drilling and completion cost. The drilling and service companies are bearing the brunt of the so called discipline, so its not being disciplined if you have no other choice.

In the downturn service companies take a hit to stay in business, to some extent that offsets the often exaggerated charges they used during the good times as a consequence of demand outpacing supply. But also during the downturn companies learn how to cut costs. They find out that zipper fracking saves a lot of logistical time and costs, they find ways of optimizing drilling fluids, trucking, drilling time etc. When the oil price rises those cost cutting measures don’t go away even though actual service costs will begin to rise. And the service companies themselves are exposed to some well needed cost optimization. I can’t count the number of drilling companies I’ve seen go under simply because when oil and gas prices are high and there is lots of work they run out and buy way too many rigs and hire way too many staff in the hopes of growing fast. Those drilling companies that operated within their means, not seeking huge equity in the market or debt, and sticking to a business model that churned out decent returns were able to survive and are there for the next rise in commodity prices

I don't see the shale plays lasting due to high cost versus high depletion rates per well, no amount of discipline will change that

As I have explained numerous times to others here the “shale plays” have break-even costs that are generally much less than any of the offshore operations. The also only have fast depletion in the first 24 to 36 months. Not sure what thread it was but I posted graphs from a study done recently which backs up the theoretical views on tight fractured production where you have hyperbolic decline and exponential decline….a period of decline where it can be 65%/annum or higher but then a very long period where wells decline at a couple of percent and produce at low rates for very long periods. That low rate decline is why the shale players are in this business, it is predictable and if you have enough wells producing in that phase it is a very nice stream of income that requires very little in the way of OPEX or intervention as opposed to the offshore. A company that has a thousand wells producing in the low decline rate at 50 bbls/day would be seeing cashflows in the $500 MM/yr range which is not chump change. Using an average EUR for those thousand wells results in 250 MMB of reserves which when valued on a normal P1 basis for A&D would be around $5 billion, again not something to sneeze at. The vast majority of the blogs posting negative things about shale have zero understanding of the science or the business, getting your information there is not value-added activity.

A ‘’Gusher Of Red Ink’’ For U.S. Shale

OK, what did I just say up thread? All of these news articles and Rystad included look at the cash flow from operations that are reported under IFRS guidelines in annual or quarterly reports. That includes DD&A which is a paper accounting exercise and doesn’t address how much actual cash is coming into the operation versus how much is being spent. Rather than read these articles why not educate yourself as to how to read an oil and gas financial report…they are all public domain documents if the company is publicly traded. If all of these "analyzes" had any truth there would be no unconventional industry given regardless of how stupid you think we are nobody who has ever run and oil and gas company will go for more than a very short time losing money before they seek a solution.

If all of these "analyzes" had any truth there would be no unconventional industry given regardless of how stupid you think we are nobody who has ever run and oil and gas company will go for more than a very short time losing money before they seek a solution.

Actually I think that the folks that run these companies are pretty smart. They pay themselves first and damn the torpedoes, because they are safe regardless the outcome. The people that engineered the housing bubble were pretty smart and didn't get caught by the SEC too. I'm willing to chalk this up to lets just see how it turns out.

My prediction is that the pure shale players get mostly wiped out, or bought out by the majors for pennies on the dollar and then eventually (not too long) the majors will move on and real companies will take the stripper wells left behind and make them work in a much smaller way than a " shale miracle".

Actually my prediction isn't much of a prediction, because it happens all the time that small time oil men end up with old worn out strippers.

Like the very low yield on the ten year, the oil price is predicting a severe outbreak. Stocks are not necessarily doing the same. They have a lot more room to move in order to show that.

It's amazing how low energy stocks were already. Add the predicted demand destruction, and some businesses will have to go bankrupt. Maybe attempting to stall with noncooperation on the part of the Russians is aimed at those frackers who are hanging on the brink? They had to know that noncooperation would bring the price down.

evilgenius wrote:Like the very low yield on the ten year, the oil price is predicting a severe outbreak. Stocks are not necessarily doing the same. They have a lot more room to move in order to show that.

It's amazing how low energy stocks were already. Add the predicted demand destruction, and some businesses will have to go bankrupt. Maybe attempting to stall with noncooperation on the part of the Russians is aimed at those frackers who are hanging on the brink? They had to know that noncooperation would bring the price down.

I think you go too far there. This Covir-19 pandemic will severely depress oil demand for the three to six months it will take to work through the world population but then demand will bounce back up as people get the things they have put off and replace stocks consumed while confined at home. Not everything will be replaced of course as a vacation is not something you have to do if you have once skipped it. Perhaps a few oil and drilling companies will not be able to withstand six months of very low prices but the big dogs will gobble up their assets for pennies on the dollar and the wells will resume production as soon as the market requires it.

Actually I think that the folks that run these companies are pretty smart. They pay themselves first and damn the torpedoes, because they are safe regardless the outcome.

that isn't the case at all which you would know if you ever bothered to read a 10K or other SEC submission. Management in these small companies are compensated mainly via stock options or performance shares. If the company doesn't do well they get nothing other than a salary which is generally much, much less than the money they had to invest in the first place. Almost all investment companies require management in these companies to have skin in the game. In most cases that "skin" is not paid out via net salary in less than 3-5 years. Management that have millions of options that might have been worth a lot when oil prices were high and everyone was in love with the oil and gas investment scenario were not able to sell those back then as it would have cratered the share price. As a consequence, they rode the price down. Multimillionaires on paper at one time and not anymore.

My prediction is that the pure shale players get mostly wiped out, or bought out by the majors for pennies on the dollar and then eventually (not too long) the majors will move on and real companies will take the stripper wells left behind and make them work in a much smaller way than a " shale miracle".

Tight formation production and completion is not the same as conventional. Conventional "stripper" wells are not the same thing and cannot be compared in terms of any metrics other than daily production rate. Most "shale" wells are classified as stripper wells in 3 years time but they can continue to produce at that rate without much in the way of OPEX and zero CAPEX for many years thereafter. There will be consolidation, anyone who is anyone in the industry has been calling for this for a half-decade but amazingly companies have been able to hang on this time around. The majors will do some of the consolidation but a lot of it will be mergers or leveraged farmins amongst the smaller companies. And once the oil price rises again there will be a bunch of new startups who are using newer technology (eg: refracking) and improved operating models and that will grow throughout the next cycle until it too ends. People seem to forget that there is now only about a 5% on average recovery factor from all of the in-place oil in North American tight formations. Given ultimate recovery factors in conventional reservoirs rose from an average of 30% up to 60% over the last few decades it would not be unusual given all the tech being tested on tight formations that ultimate recovery could double or triple as time goes on.

tita wrote:So, Russia blew up the OPEC+ deal and oil prices plunged. 10% in a single day. On already depressed prices.

This is not your everyday routine on oil prices! Of course, this led to a bloodbath in energy stocks.

Gee, and energy prices NEVER EVER move quickly in response to unexpected news.

For oil adjusting by roughly 10%, I'm sure not seeing a bloodbath in oil related stocks and funds I own or watch.

Examples: BP down about 4%. PRNEX down about 3.5%. CVX down about 2%. XOM down about 5%. Royal Dutch Shell down about 4%.

And looking at the past month, a roughly 20% drop in oil stocks, given a roughly 20% drop in WTI prices isn't exactly a stunning event, is it?

And if investors (vs. speculators) in oil stocks can't handle (or don't expect) plenty of share price volatility, then they need to invest in something else, like CD's.

Probably more perspective and less spewing doomer words like "bloodbath" would be in order.

Unless the intent is to spread FUD instead of news, of course.

Oh, and at the risk of stating the obvious, there MAY come a point when oil stocks are a tremendous deal for the long term, if the panic continues long enough and sharply enough over COVID-19. The last time that occurred for me in a blindingly obvious way was when in Jan of 2009 I gleefully repurchased the energy mutual fund shares I'd sold with oil so high in July of 2008, for about a THIRD of what I'd sold them for. (Sometimes, I'd rather be lucky (and patient) than "smart").

Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.

Oh, and at the risk of stating the obvious, there MAY come a point when oil stocks are a tremendous deal for the long term, if the panic continues long enough and sharply enough over COVID-19.

exactly. If you believe that oil is a non-renewable and that at some point we will have tapped the vast majority of the unconventional that is currently economic then oil prices must rise and along with it the share price of producers. It has happened before and it will happen again. Alternatives cannot replace it quickly enough. The COVID-19 thing is a black swan event and it too shall pass.

I note that Exxon is investing heavily at a time when their investors aren't all that happy with them being aggressive due to low energy prices. But Exxon believes oil prices will rise at some point in time and they want to be positioned to take advantage of that. As a consequence, they are doing whatever they can to maintain their dividends. An interesting stock I have watched (no longer own any of it) is Vermillion. They were at $78 back when oil was $100 and are now somewhere around $13. Up until last Friday they maintained their dividend which as of then had a yield of around 14% which is ridiculously high. They decreased the dividend on Friday and the stock price dropped 6.5% in a heartbeat. That being said it is clear they are positioning themselves to muddle through a period of low prices and stay alive (work within cash flow) such that when prices rise in the future they will be positioned to attract investors (undervalued stock and room to move with regards to dividend increases).

.Yep , present prices don't make sense long term there still is no substitute for oil based products , my particular interest is middle distillatesdiesel and jet fuel mostly , no amount of renewable come close to replacing them fracking is light stuff , and about half of new discovery is gas

Been here, done that at least several times before. Each and every price crash has been followed by a rise in prices once supply and demand come back into sync. We just had a black swan event with the COVID panic which probably (no one has the numbers yet) has affected Asian demand and with the high supply that was out there already (thankyou unregulated US producers) that means there was an imbalance and now the Saudis are going to use that to grind what they want out of the system (i.e. N.Am high cost full cycle producers to stop drilling and N Am production to drop precipitously). So those US companies will stop drilling and probably won't complete the frack log. Production will drop like a rock, the COVID panic will turn out to be much less of an issue than all the panic artists wanted it to be and demand will rise. It will take some months but eventually demand will be back above supply and guess what? ....prices will rise. It is a non-renewable commodity which is not easily replaced and normally in very high and increasing demand. As has been said many times the cure for low prices is low prices.The upside here is we might finally see the consolidation in the N AM oil and gas industry that should have happened a couple of years ago. It is healthy and needs to happen now.

rockdoc123 wrote: ........... the COVID panic will turn out to be much less of an issue than all the panic artists wanted it to be ...............

And you know this ,,,, how?

Always entertaining to see/hear/watch the cornies whistling ever louder past the graveyard even as the 'panic artists' cry doom. Me? I'm betting that $28.30/barrel (current price as I type) is a BIG-FREAKIN'-PROBLEM for a lot of people. Dow futures down over 1200 points. But. hey. it's only funny money.

Right?

Blessed are the Meek, for they shall inherit nothing but their Souls. - Anonymous Ghung Person

rockdoc123 wrote:Production will drop like a rock, the COVID panic will turn out to be much less of an issue than all the panic artists wanted it to be and demand will rise.

In 2-3 months, yes, the covid-19 crisis will probably be behind on a healthcare POV.

But we are not there yet, and I think people don't understand the current situation and what it means NOW. From a european perspective, it's a shitstorm that affects our everyday life. The problem is that Italy is right now affected with an healthcare crisis, a lack of ICU units to take care of the large amount of people in need of them. This is not because people panic and go to the hospital because of a little cough, it's way beyond that point. We can see it affecting large events in the US, like Indian Wells or SXWS. This started like this in Europe two weeks ago.

So, it's two things that affect oil prices, the covid-19 crisis AND the oil price war triggered by Russia and KSA.